Question
In which of the following situations is management most likely to make conservative choices and estimates that reduce the quality of financial reports? The firm
In which of the following situations is management most likely to make conservative choices and estimates that reduce the quality of financial reports?
The firm must meet accounting benchmarks to comply with debt covenants. | ||
Management's compensation is closely tied to near-term performance of the firm's stock. | ||
Earnings for a period will be higher than analysts' expectations. |
In forecasting financial statements for a company, analysts would most likely hold which of the following items constant as a percentage of sales?
Accounts receivable. | ||
Repayments of debt. | ||
Retained earnings. |
If a firm's financial reports are of low quality, can users of the reports assess the quality of the firm's earnings?
Yes, because if financial reports are of low quality, earnings are also of low quality. | ||
Yes, because users can assess earnings quality independently of financial reporting quality. | ||
No, because low-quality financial reports are not useful for assessing the quality of earnings. |
Any help is appreciated!
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